Risk Management and Compliance

HKL has established a strong risk management structure that is commensurate with its size and the nature of the business. This structure facilitates effective management oversight and execution of risk management and control processes.

The Asset Liability and Risk Board Committee (ALRBC) were formed to establish and oversee the risk management framework. This committee is comprised of at least three members of the Board and the President& Chief Executive Officer, with another senior member of management as a secretary. The Asset Liability and Risk Management Committee (ALRMC) is another committee operating at management level to oversee the day-to-day risk management of HKL.

HKL has also established a Risk and Compliance Department as a second line of defense with an independent function of risk management reporting directly to the President & CEO. The Risk and Compliance Department reports to the ALRMC on a monthly basis and to the ALRBC on a quarterly basis.

Duties of ALCO and Risk Board Committee (ARBC)

Reviewing risk identification and measurement methodologies.

Reviewing guidelines on HKL’s tolerance for financial risk and performance review against limits.

Monitoring activities to ensure that HKL is meeting public regulatory requirements and covenants set by HKL’s lenders in loan agreements.

Reviewing management reports detailing the adequacy and overall effectiveness of the company’s risk management function and its implementation by management, and reporting on internal control, any recommendations, and confirming that appropriate action has been taken.

Reviewing risk philosophy, strategy and policies as recommended by management, and ensuring compliance with such policies and with the overall risk profile of the company.

Key Activities of the ARBC

The meeting of ARBC was convened four times during 2015: in March, May, September, and November. The company’s risk profile, including credit risk, operational risk, financial risk, liquidity risk, compliance risk, technology risk, and other relevant risks, was presented by the Risk and Compliance Department and discussed during the meeting to ensure that key risk indicators and limitations were in full compliance with the set limits as approved by the Board of Directors. It was also to ensure that potential risks were identified and appropriate action was taken to mitigate the risks. At the final meeting in November, the committee also performed its main function: to reset the credit limits to align with the company’s risk profile and new business plan as well as with the current economic context of Cambodia and the economic forecast for the coming year.

Compliance

The Risk and Compliance Department is responsible for the compliance tasks of HKL, including internal and external compliance. HKL’s compliance function is committed to performing its duties to ensure the adherence to the Prakas and Law on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT). HKL has in place the AML/CFT policy, procedures, and guidelines to ensure that all HKL operations are in conformity with the AML/CFT Prakas and Law. In addition, early in the second quarter of 2015, HKL promulgate its guidelines related to US Foreign Account Tax Compliance Act (FATCA) implementation, as per the instructions from NBC. During year 2015, the Risk and Compliance Department undertook significant work with the relevant departments and branches to effectively implement FATCA. As a result, all essential data and information were ready in preparation for reporting to the competent authority. Compliance training is very important for HKL and it has committed to training all employees on AML/CFT through foundation and refreshment training. The Risk and Compliance Department conducted a total of 19 courses on AML/CFT in 2015.